As California aggressively pursues its transition to electric vehicles, the state faces a significant fiscal challenge: the steady erosion of gas tax revenue, the primary funding source for road construction, maintenance, and repair for decades.

• California’s transition to electric vehicles is causing a decline in gas tax revenue, prompting the state to consider a mileage tax to fund transportation infrastructure.
• The proposed mileage tax would likely trigger existing state labor laws, requiring employers to reimburse employees for the tax as a necessary business expense.
• Employers may face significant financial impacts from increased reimbursements, potentially leading to higher prices for customers, reduced employee travel, or other cost-control measures.

In response, the California Legislature is seriously considering new ways to fund the state’s transportation infrastructure—including by imposing a tax on miles driven.

From August 2024 through January 2025, the state tested the road charge pilot program, a monitoring system to measure vehicles’ mileage with a potential 2.8-cents tax per mile. With the pilot program having recently concluded, the official results and subsequent legislative proposals are anticipated to arrive in the next few months.

For California employers, this is not a distant policy debate; it is a looming financial reality. The implementation of a mileage tax would likely trigger existing state labor laws, creating a new mandatory business...

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